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2015 (11) TMI 1455 - DELHI HIGH COURT

2015 (11) TMI 1455 - DELHI HIGH COURT - [2016] 380 ITR 289 - Addition made under Section 68 - ITAT deleted the addition - Held that:- The Assessee had been asked by the CIT (A) to produce 7 directors of the Table III companies. 6 directors appeared and their statements were recorded. They had confirmed that they had subscribed to the share capital of the Assessee. These directors had not only produced the books of accounts but showed that the source of investment was duly recorded therein. The R .....

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AO does not appear to have undertaken any particular investigation into the affairs of the Table-I, II or Table III companies apart from issuance of the notices under Section 131 of the Act which were duly responded to.

Detailed findings have been given by the ITAT in the present cases after a thorough examination of the records. These have been extracted hereinabove. The Court finds no reason to differ from the decision of the ITAT in its rejection of the very same contentions urged .....

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of the person purchasing the shares.. Some of the investor companies for e.g., Quality Security Services Pvt. Ltd. (b) United Head Hunters Pvt. Ltd. and (iii) Wellset Pharma & Drugs Pvt. Ltd. have been shown to be filing returns and being assessed on a regular basis. Some of them have been shown to be in existence even before the incorporation of the Assessee. Indeed the Revenue was unable to produce material to substantiate its case that the genuineness and creditworthiness of the investors an .....

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se are three appeals by the Appellant, Revenue, against the common order dated 29th April 2014 passed by the Income Tax Appellate Tribunal ( ITAT ) in ITA Nos. 4545, 4246 and 4247/Del/2012 for the Assessment Years ( AYs ) 2007-08, 2008-09 and 2009-10 respectively. Limitation 2. Considering that the impugned order is dated 29th April 2014 and the appeals were first listed for hearing nearly a year later on 10th April 2015, the question whether the appeals were in time was examined by the Court. I .....

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ugust 2014. Next to it, is a noting of 5th August 2014 asking the matter to be put up for 'appeal effect' urgently. However, also enclosed is a copy of a covering letter dated 24th November 2014 from the Income Tax Officer (ITO), Headquarters-8 (Judicial), New Delhi addressed to the CIT-III (Post restructured) drawing the attention of the latter to the ITAT s order in the cases of the present Respondent, Five Vision Promoters Pvt. Ltd. ( Five Vision ). 4. By an order dated 9th October 20 .....

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vember 2014 of the ITO (Judicial) that cases concerning Five Vision were under the jurisdiction of the ACIT/DCIT, Circle-9 (1) [Pre restructured Cir.11 (1)]. The letter stated that it was not known whether a copy of the consolidated order of ITAT had been forwarded to the concerned CIT. Therefore, a letter was again being written to the CIT-III (Post restructured). However, as noticed earlier CIT-III had already received a copy of the order on 1st August 2014 itself. In any event, going by the e .....

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e Act. There is, however, no application for condonation of delay and the appeals have been numbered and listed by the Registry as if they were within limitation. 6. Faced with the above difficulty, Mr. Sawhney, learned Senior standing counsel for the Revenue, volunteered to file a separate application for condonation of delay. However, at that stage Mr. C.S. Aggarwal, learned Senior counsel appearing for the Assessee, Five Vision, made a statement that the Assessee was not pressing the objectio .....

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appeals sought to urge the following question for consideration: Whether the ITAT erred in deleting the addition made under Section 68 of the Act of share application money by holding that the identity and genuineness of the share applicants was established? Background facts 8. The background to filing of these appeals is that the Assessee, Five Vision, is a company incorporated under the Companies Act, 1956 on 14th January 2005 with the object of running a shopping mall. The business of the As .....

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ved share capital from 106 companies between AYs 2003-04 to 2009-10. The said shareholders have been categorised Table-I, II and III shareholders. Table-I shareholders, which were 20 companies, were subjected to search under Section 132 of the Act. Table-II shareholders, comprised 12 companies against whom the proceedings were initiated under Section 153C of the Act consequent upon the search. Table-III shareholders, comprised 74 companies whose identity and existence were not doubted since they .....

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llegation was that on-money was taken in cash and in turn was routed back into the Group companies in the form of share application/unsecured loans, share capital etc. The unaccounted money routed through the said channel was reinvested in the purchase of further lands and for new projects. The share application money received in cash was also utilized for booking bogus expenses as site development charges for inflating the cost of construction to bring down profits. Among the SVP Group of compa .....

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al Director of Income Tax (Investigation), Ghaziabad, the SVP Group of companies did not produce the shareholders despite being served with notices for that purpose. It was alleged that the shareholders were not produced till finalization of assessment order, i.e., upto 21 months thereafter. 12. As far as the present Assessee, Five Vision, is concerned, it filed its return of income for AY 2007-08 on 2nd November 2007. For AY 2007-08, the amount contributed by the corporate shareholders to the s .....

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are concerned, the total contribution to the equity share capital of Five Vision aggregated to ₹ 2 crores and ₹ 4.55 crores respectively. The said contribution was entirely from Table-III category shareholders. 14. Consequent upon the search that took place on the SVP Group of companies on 14th October 2008, notices were sent to Five Vision on 14th May 2010 under Section 153C of the Act for AYs 2007-08, 2008-09 and under Section 271F of the Act for AY 2009-10. In response to the abov .....

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bad on 13th October 2010. Again notices under Section 142 (1) of Act were issued to the Assessee for the AYs in question by the ACIT, Central Circle, Ghaziabad on 25th October 2010. For AY 2007-08, a further notice under Section 142 (1) was issued on 22nd November 2010 and for AYs 2008-09 and 2009-10 on 2nd December 2010. 15. As already noted, there were 20 companies belonging to Table-I. As far as Five Vision is concerned, the case of the Revenue was that 14 of these Table-I companies were its .....

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e capital of Five Vision during the AY 2007-08. 16. As far as AY 2008-09 was concerned, four of the Table-III companies contributed ₹ 2 crores to the share capital of Five Vision. As far as AY 2009-10 was concerned, 20 of the Table-III companies contributed an aggregate of ₹ 4.55 crores to its share capital. None of the companies in Tables I and II contributed to the share capital of Five Vision for AYs 2008-09 and 2009-10. Assessment order 17. The assessment order was passed on 30th .....

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na Goyal, Smt. Sushila Goyal and Shri Sachin Garg denied that any of the said companies existed at the said addresses. Further, despite letter dated 5th March 2009, and summons under Section 131 dated 20th March and 6th April 2009, the Assessee failed to produce the shareholders for cross examination. (iii) As far as the Table III companies were concerned, many of the summons issued were returned unserved with the remarks "unknown" or "no such person". 24 of the companies sub .....

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Group stood proved from the fact that shares were bought back by the individuals/concerns belonging to SVP Group. During the search, original share certificate worth ₹ 38 crores were found out of which some were seized. During the search one Shri Vijay Jindal gave a statement that the shares were allotted at ₹ 10 per share and later on bought back at ₹ 2-3/- per share. The actual average purchase price was ₹ 1.04 per share. Thus shares that were initially issued by the SV .....

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sion filed appeals before the Commissioner of Income Tax (Appeals) [ CIT (A) ]. The Assessee furnished some more documents on which remand report was called for by the CIT (A) from the AO. The remand report was submitted by the AO on 11th November 2011. A rejoinder and recapitulation note was submitted before the CIT (A) on 8th December 2011. A reply dated 21st December 2011 was also filed by the Assessee on the questions raised by the CIT (A) on 8th December 2011. Further responses were submitt .....

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CIT (A), the Assessee, Five Vision, filed appeals before the ITAT. Impugned order of the ITAT 21. By the impugned order dated 29th April 2014, the ITAT deleted the additions made under Section 68 of the Act by holding that: (i) The Revenue had been unable to deny the factual position that only 11 of the 20 companies in Table I had actually been searched. The material on record showed that directors of 18 companies of the 20 companies were examined by the AO in the course of the remand proceedin .....

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ldtech was concerned, while no addition was made by the AO of the sum of ₹ 28 lakhs invested by it in Five Vision for AY 2006-07 and ₹ 1,57,27,500 in AY 2007-08, he added the sum of ₹ 1,74,75,000 received from it in AY 2007-08. This apparent contradiction showed that the addition was made without appreciating the complete facts on record. (iv) The decision of this Court in M/s. Nova Promoters and Finlease (P) Ltd. 342 ITR 169 (Del) was distinguishable on facts since in that cas .....

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e subsequent sale of the shares subscribed was not germane to the question of the genuineness of the share capital amount received by the Assessees. Once the capital raised stood explained, the issue of disinvestment by the shareholder subsequently was a non-issue. The addition if at all was to be examined in the hands of the person purchasing the shares. (vii) There was no material to support the Revenue's case that the 'on-money' collected in cash was routed back into the SVP Group .....

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s to their income by the AO concerned by holding that the additions if at all should be made in the hands of the beneficiaries. In the appeals filed in those cases, the Revenue had contended that the additions ought to have been sustained. Thus, the stand of the Revenue was contradictory and untenable. (ix) The Assessee had discharged primary onus of proving the the identity, genuineness and creditworthiness of the said shareholders. Submissions of counsel 22. Mr. Rohit Madan, learned counsel fo .....

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of cheque transactions before the investment was made eventually in SVP group of companies. Thirdly, the CIT (A) checked the creditworthiness of three shareholding companies, viz., (i) Quality Security Services Pvt. Ltd. (b) United Head Hunters Pvt. Ltd. and (iii) Wellset Pharma & Drugs Pvt. Ltd. and found that these companies did not have any worthwhile share capital and their activities were only in the form of management of fund rotation in the garb of share application money invested in .....

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anies at that place. The Assessee had received huge amounts of money of ₹ 11 crores in cash in the form of share application money, which was not explained. Lastly, it was submitted that the decision in M/s. Nova Promoters and Finlease (P) Ltd. (supra) was wrongly distinguished by the ITAT in its application to the facts of the present case. 23. Mr. C.S. Aggarwal, learned Senior counsel for the Assessee, filed the entire record of the case submitted before the AO, CIT (A) and the ITAT and .....

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as filed by the Assessee. This included, inter alia (i) copy of share application forms; (ii) copy of board resolution; (iii) copy of allotment letter confirming the allotment; (iv) confirmation in affidavit by the investor (v) copy of share certificate evidencing the allotment of shares; (vi) copy of income tax return ( ITR ) for the relevant AY; (vii) the relevant extracts of the copy of bank book; and (viii) copy of the letter with enclosures filed by the investor company addressed to AO in r .....

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ich contributed a sum of ₹ 2 crores for the share capital of Five Vision for AY 2008-09: (a) copy of certificate of incorporation/MOA; (b) copy of ITR filed for relevant AY; (c) copy of share application forms; (d) copy of board resolutions; (e) copy of bank statement (relevant extracts); (f) copy of confirmation; (g) confirmation in the affidavit by the investor (h) copy of the letter with enclosures submitted by the investor companies in response to the summons under Section 131 o the Ac .....

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een duly complied with and then the shareholders independently confirmed having subscribed to the share capital in Five Vision. 27. Reliance was placed by Mr. Aggarwal on the decision of the Supreme Court in CIT v. Lovely Exports (P) Ltd. 216 CTR 195 (SC), CIT v. Divine Leasing and Finance Ltd. (decision dated 21st January 2008 of the Supreme Court in Special Leave to Appeal (Civil) (CC) 375 of 2008) and decision dated 17th September 2012 of the Supreme Court in CIT v. Kamdhenu Steel & Alloy .....

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ct is necessary. Under Section 68 of the Act, the AO has jurisdiction to undertake enquiries with regard to the amount credited in the books of the accounts of an Assessee. This could be any sum whether in the form of sale proceeds or receipt of share capital money. First, the AO is to enquire whether the alleged shareholders in fact exist or not. The truthfulness of the assertion by the Assessee regarding the nature and the source of the credit in its books of accounts can be examined by the AO .....

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rima facie prove "(1) the identity of the creditor/subscriber; (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor/subscriber . (ii) If the relevant details of the address of PAN identity of the creditor/subscriber are furnished to the Department along with copies of the Shareholders Register, Share Application Forms, Share Transfer Register etc., it wou .....

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tigate the creditworthiness of the creditor/subscriber the genuineness of the transaction and veracity of the repudiation. 30. In the decision CIT v. Divine Leasing and Finance Ltd. (supra), this Court held that if the Assessee had furnished relevant details of the subscribers and the shares were allotted as per the prevalent norms of the Stock Exchange, no addition could be made on account of unexplained cash credits. Where the Assessee had provided the relevant details it had discharged its on .....

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ts in accordance with law. 31. Likewise in CIT v. Dolphin Canpack Ltd. 283 ITR 190 the Court held no substantial question of law arose since the ITAT found that the Assessee had disclosed to the AO during the course of enquiry not only the names and the particulars of the subscribers of the shares but also their bank accounts and the permanent account numbers issued by the income tax department. Superadded to all this was the fact that the amount received by the company was all by way of cheques .....

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would not give Revenue a right to invoke Section 68 without any additional material to support such a move. It was held likewise in Sarthak Securities Co. (P) Ltd. v. ITO 329 ITR 110. 33. In CIT v. Nipun Builders and Developers (2013) 350 ITR 407 (Del) it was held that the point at which the initial onus on the Assessee to prove the unexplained credit would stand discharged depends upon the facts and circumstances of each case. It was observed: Circumstances might require that there should be s .....

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e Assessee to satisfy the AO about the "identity, creditworthiness and genuineness" of the creditors. It was observed that the mere production of incorporation details, PAN Nos. or the fact that third persons or company had filed income tax details in case of a private limited company may not be sufficient when surrounding and attending facts predicate a cover up. These facts indicate and reflect proper paper work or documentation but genuineness, creditworthiness, identity are deeper .....

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does not apply to the Assessee which appears to be involved in the construction of a shopping mall. In fact for the AYs in question, the Assessee had not commenced any business. The construction of the mall was not yet complete during the AYs in question. The profit and loss account of the Assessee for all the three AYs, which has been placed on record, shows that only revenue received was interest on the deposits with the bank. The Assessee is, therefore, right in the contention that the basic .....

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an attempt to treat the cash credit found in the Assessee s books of accounts to be undisclosed income of the Assessee by showing the investors to be 'paper companies'. On the other hand, the attempt is to show that this money in fact belongs to certain other entities whose source has not been explained by the Assessee. As noted by the ITAT in the assessment proceedings of the investor companies, the monies invested were sought to be added as income of those companies by the AOs. The sai .....

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in their cases, the ITAT on a very detailed examination was satisfied that they not only existed, but that the Assessee had discharged the primary onus of proving their creditworthiness and genuineness. They had responded to the summons issued to them. Directors of 14 of these companies appeared before the AO and produced their books of accounts. 39. In respect of four of the Table II companies, who invested ₹ 2 crores in the share capital of the Assessee for the AY 2008-09, the CIT (A) o .....

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ctors of the Table III companies. 6 directors appeared and their statements were recorded. They had confirmed that they had subscribed to the share capital of the Assessee. These directors had not only produced the books of accounts but showed that the source of investment was duly recorded therein. The Revenue on the other hand did not produce any further evidence to dispute the above evidence produced by the Assessee. As far as Table II shareholders were concerned, if the Revenue was of the vi .....

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